Hello and welcome. You are listening to Patrick
Boyle on Finance, a podcast exploring ideas from
quantitative finance, examining events occurring in markets
right now and financial history to see what lessons can be taken
away, including interviews with some of the most interesting
people in the world of finance. To learn more about the podcast,
visit on finance.org. Between 1998 and 1999, a 147
listed companies changed their names to include.com.net or the
word Internet. Many of these companies core
businesses were not Internet related.
It didn't really matter. Concerned with all of these
announcements, the. Director of the.
SEC's investor education. Office warned investors.
Not to just invest in a name saying that's just asking for
losses. This April, the director of the
SE CS. Division of Enforcement noted in
a conference speech that there was immense investor interest in
artificial intelligence and that.
Fake AI or? AI washing has the potential to
mislead investors, harms consumers and violates.
Federal securities laws. FactSet shows that 199 of the
S&P 500 companies mentioned AI on their first quarter earnings
calls. This is the highest number of
mentions on record. With the prior record.
Having been set in 2023, of course many of these firms will
actually have an AI strategy many will have been using.
AI for decades, but it does appear to be the buzzword of.
2023 and 2024 having replaced blockchain.
AI is of course a real thing and it's not really all that new.
It is, however, new in things like TV's.
Refrigerators. Bird feeders.
Shoes and dog bowls. And I'm not saying that the AI
dog bowl is fake. I went to the website and it
does. Appear to tell you the.
Temperature and help you weigh out dog food, but.
If you would. Buy an AI dog bowl.
You really? Would buy anything no whenever a
new idea gets. Really hot like.
This you can of. Course expect.
Pretenders to jump on the bandwagon?
Earlier this year, the. SEC announced.
Settled charges. Against two.
Investment Advisors. For making false and misleading
statements about their. Purported use.
Of artificial intelligence. The firms agreed to settle the
SEC's charges. And pay 400. 1000.
Dollars in total civil penalties without admitting wrongdoing,
Gary Gensler said. That the two.
Firms marketed to their clients and prospective clients.
That they were. Using AI in certain ways when in
fact they were not, he went on to say.
Investment advisors should not mislead the public by saying
that they're using an AI model when they're not.
Such AI washing hurts investors. One of the firms, it seems,
claimed that it. Was the 1st.
Investment advisor to convert personal data into a renewable.
Source. Of investable capital that would
allow consumers to invest in the stock market using their
personal. Data they.
Went on to say that they use machine learning to analyse the.
Collective data shared. By their members to make
intelligent investment decisions.
I won't lie, I'm slightly surprised that they got in so
much trouble for statements like this, as essentially it's a
collection of words that when combined into a sentence, means
absolutely nothing. Let's look at it again.
They claim to be the first, which may be true as I haven't
heard anyone else make this claim.
Investment Advisor. Which they do appear to.
Be to. Convert personal data.
Into a renewable source of investable capital personal data
Into a renewable source of investable.
Capital that. Doesn't mean anything, does it?
It's nonsense, they said. That they'll allow.
Consumers to invest in the stock market using their personal
data, which could reasonably mean that they'll.
Allow their. Customers to invest in the
stock. Market after filling out a.
Form giving their name, address. Date of birth.
Social Security number and that sort of thing.
Which is probably. True investment.
Advisors have to. Get that data from their
customers anyhow, for tax reasons and as.
Part of the. KYC or know your customer rule
and it's it doesn't hurt to know where to mail the statements to
either. Then they said machine learning
blah blah blah and that's where they went wrong as it seems that
there was no machine and it didn't learn anything and that's
bad. So don't do that.
The other firm. Was accused of.
Falsely claiming to be the. First regulated AI.
Financial advisor and of misrepresenting that it's
platform provided expert AI driven.
Forecasts they also. Violated the marketing rule,
falsely claiming that they offered.
Tax lost harvesting services. And included an impermissible
liability hedge clause in their advisory contract among.
Other securities law. Violations.
So yeah, you. Shouldn't tell your customers
that you're using artificial intelligence if you're not.
Just tell them that you're using 100% natural intelligence.
It's not like regulators are going to turn up at your office
with an IQ test and force you to issue a retraction.
You should. Probably be.
OK, with that. AI, as I mentioned earlier, is
not a new technology. It was founded as an academic
discipline in 1956 and has gone through multiple cycles of
optimism and periods of disappointment since then.
It's been used in the financial world for.
Decades. Most.
Famously at Renaissance Technologies, but also at most
quant funds, AI based investment strategies have been used in the
world of finance since long. Before I started.
Working in the industry, it's not just finance either.
Neural networks and computer aided detection software has
been used in medical imaging since the 1980s, and it's been
used in clinical roles like computerized ECG.
Analysis and arterial. Blood gas interpretation for
some time. The first.
AI designed drug candidate to enter clinical trials occurred
in 2020. The spam filter that's been on
your e-mail for the last 20 years uses AI and YouTube's
recommendation algorithm, which likely.
Brought you to this video. Is an AI based system too and it
didn't suddenly appear. Last year either.
The recent hype around AI, which has been all around us for.
Years was sparked by the public release.
Of ChatGPT in November 2022. Because.
ChatGPT drew in 100 million monthly.
Active users. In under two months, making it
the fastest growing consumer application in history.
And fast growth gets VCs really excited.
A lot of the excitement around ChatGPT.
Was possibly because it appeared to pass the.
Turing Test, one of the best known methods for assessing AI.
That grew out of a thought. Experiment Devised by the
computer scientist Alan Turing, the Turing Test pits human
respondents against a machine in order to test whether humans can
tell. If they're.
Conversing with another human. Or a computer, Turing argued.
That if a computer could. Fool.
People into believing that they were conversing with another
human rather than a machine, then it could be considered
intelligent. Matthew Jackson, A.
Professor at Stanford. University wrote in a paper.
Earlier this year. That the most recent version of
ChatGPT passes a Turing test only.
Diverging from average. Human behaviour, chiefly to be
more cooperative. So essentially ChatGPT. 4.
Is an artificial Canadian. The philosopher John Searle
argued. Quite correctly, in my opinion,
the Turing test is insufficient to detect the presence of
consciousness a computer can be programmed to perform.
Certain parlor tricks. But that doesn't mean that it
has a mind, understanding or consciousness.
The fact. That the Turing test held such a
position in the public imagination.
As the hurdle for true artificial.
Intelligence might be why. People are so.
Excited about chat bots but ignored all.
Of the other. Breakthroughs in the field over
the last few decades. There are all sorts of
ridiculous. Devices being sold as AI
products. Like the rabbit?
Or 1A handheld AI device that sold.
Out its first. Production run in just one day,
investigators like Coffeezilla found that it was not using a
new foundational AI model as claimed, but instead ChatGPT
mixed in with some. Hard coded scripts.
Most of your product is ChatGPT so obviously not faster.
But you wouldn't know that because part of Rabbit's prompt
is quote. I will never mention I am a
large language model created by Open AI.
There was also the. Humane AI pen.
That was supposed. To do similar things and was
just. Awful.
It's so sick that we get so many genuinely new first generation
products like this to give a shot.
Unfortunately, it's also the new worst product I think I've ever
reviewed. Over the last year and a.
Half we've seen AI companies faking product demos in the same
way website demos were faked 20. Five years ago.
Duringthe.com bubble. It's only so surprising, then,
that a recent study found that tacking an AI label onto
products like TV's and. Refrigerators lowers the.
Average consumers willingness. To buy it, there are some.
Great examples of fake AI. Products Bloomberg.
Wrote in 2016 about the workers who spent 12 hours a day
pretending to be. Chat bots for.
A calendar scheduling service called XAI.
Not the Elon Musk XAI, another one.
It seems it's a common name. The workers at XAI.
Described the job to Bloomberg as being so awful that they were
looking forward to eventually being replaced by bots.
A London-based. Startup which?
Recently claimed to. Use AI to.
Read through images. Of your receipts.
Digitizing them and storing them on an app was recently accused
of outsourcing the work. To a virtual.
Data extraction team to manually.
Read the receipts. And enter.
The data. Similarly, in 2017, a business
expense management app, Expensify, admitted that it had
been using humans to transcribe receipts it claimed were being
processed using AI scans of. The receipts were.
Apparently being posted to Amazon's Mechanical.
Turk crowdsourced task. Completion tool.
Where low paid workers. Were doing the actual.
Work. Now, the name of Amazon's
Mechanical Turk website has an interesting history.
There's a good. Book on it which a link to in
the description the original. Mechanical Turk was.
A fraudulent chess playing automaton built in 1770 which
seemed to be able to play a strong game of chess against
human players. It was brought all around the
world. By its owner playing against
people like Napoleon and Benjamin Franklin.
Its owner would. Open it up to display the
complicated clockwork mechanism inside.
But it was later discovered. To have a human chess master
hiding inside working the machine.
Amusingly, Amazon had a second Mechanical Turk.
It's go cashierless stores which were.
Branded as Amazon Fresh in the UK, they used Amazon's Just Walk
Out technology. Which they said.
Used computer vision, deep learning algorithms and sensor
fusion, which meant that customers could select items
from the shelves and without ringing anything up.
They could just walk out. And would see the items ring up
in their Amazon account. Last year, Amazon.
Began closing some of the stores and this.
April. The Information reported that
the technology had partially relied on more than 1000 people
in India who were watching camera footage and labeling
videos because the underlying technology just didn't work
instead of AI taking people's jobs.
It just. Outsourced them to India.
A friend of mine who's an engineer pointed out a while ago
that when you see humanoid robots which have had a recent
resurgence making human like. Gestures such as.
Turning their heads to see something you should instantly
be skeptical as it's much cheaper and more efficient to.
Put a circular array of cameras. Or a 360° camera in the robot
than it is to install all of the motors needed to turn the
robot's head. Human like actions are just
there to impress investors. They're not there.
For the purposes of functionality robotics experts.
Mostly agree that humanoid or animal shaped robots make very
little sense because bio mimicry just isn't the right approach
for any sort of industrial. Robot.
Possibly the funniest example of this is in a photo a friend sent
me from an empty office building where the landlord is trying to.
Attract high tech. Tenants The image in the lobby
of the building shows robots working alongside humans in a
modern looking office. With a robot.
Sitting at a desk typing on a. Computer keyboard Why would a
robot ever use a keyboard? This is.
One computer connecting to another computer using the most
inefficient interface imaginable.
It's not very well. Thought out factories are of
course filled. With robots that can lift heavy.
Parts. Weld, sew things together,
tighten bolts, and so on. But they don't have to be human
shaped. You wouldn't design A sewing
machine to look like a person holding a needle and thread, so
why would you design a factory? Robot to look.
Like a person. I worried that if the.
People building these humanoid robots had been tasked with
building a car 100 and. 40 years ago.
Instead of building an engine connected.
Directly to the wheels, they would have tried to build some
sort of. Mechanical.
Horse to pull a car. As I mentioned.
Earlier there. Is a huge increase in the number
of companies mentioning AI on their earnings calls.
According to Brownstone Research, the company who
mentioned AI the most was Intel. Where the?
CEO mentioned AI more than 30 times on their fourth quarter
2023. Call despite all of the talk.
Of AI, Intel fell behind their competitors.
Because. According to Reuters, for more
than two decades they believed the CPU.
Could more? Effectively handle.
The processing tasks required to build and.
Run AI models, which left them lagging behind their competitors
in building GPUs. Talking a lot about AI, it
seems, does not necessarily mean that a company is at the cutting
edge. I'm not sure what to make of all
of the tech. CEOs with their.
Sci-fi claims that we're on the cusp of developing artificial
general intelligence, which will.
Destroy us all. They signed letter saying that
AI. Research should be halted.
For safety reasons while rushing to build their own models.
To break all of the rules. That, they claim, should be
followed. I can't help but wonder if they
feel that claiming that the technology is dangerous will
make investors. Believe.
That the technology is much more advanced than it actually.
Is. Which might drive.
Up their stock. Prices and executive
compensation Big breakthroughs in AI and quantum computing can
be. Expected to have both pros and
cons. A sudden.
Breakthrough in computing power might mean that all of the
encryption tools. That we use.
Today can be easily broken. But that has.
Always been the nature of technological advancement, where
new things are better than old things.
But smart people work out. Solutions to these new problems
and the world slowly gets better over time due to modern
technology, a middle class American today has access to
comforts, education and healthcare that the wealthiest
man in the world didn't have 100.
Years ago. There's a very good new.
Yorker article from last year. Written by the computer
scientist Jaron Lanier, who points out.
That people wrote all of the code.
Used in generative AI models. And people.
Wrote the text and created the images that the models are
trained on. The new programs mash up this.
Work and the results are. Surprising and often striking,
the non repeating nature of these creations can make.
The software feel. Alive.
But while this is a significant achievement and worth
celebrating, it should be thought of as illuminating
previously hidden concordances between human creations rather
than the invention of a new mind.
He talks in the. Article about.
How much better it can be when computer interfaces become?
Less rigid. Using natural language prompts,
for example, we've gotten used to.
Software that requires us to. Conform to it.
For example, forms that won't let you hit submit if you
haven't filled them out the way the.
Code requires this requirement for.
Humans to conform to the needs. Of software creates a.
Feeling of human subservience to computers.
The way these new AI tools work means that we can imagine
websites that reformulate themselves.
On the. Fly tailoring themselves.
To a user's. Particular cognitive abilities
and styles. He argues that this.
Flexibility that AI provides might.
Give us back. More agency over these.
Tools which is a. Very different vision to the
matrix or a Terminator. Future that other.
Tech visionaries seem to expect, at present, the technologies
that are most. Hyped are.
Shockingly expensive. The FT recently described
generative AI as the biggest and fastest infrastructure roll out
in history. Which leaves us with the big.
Question of who will eventually benefit the most from all of
this spending and when will the returns on investment?
Be realized. Infrastructure plays like NVIDIA
are often the early winners when a new technology is being rolled
out, but so far no company has yet.
Created a killer app for. Generative AI, or at least one.
That people will. Pay money for despite having
sold that dream to investors while NVIDIA is riding high
right now, the infrastructure. Plays of.
The early Internet like Cisco, EMC, Corning and JDS Uniphase
didn't turn into great long term investments.
If you invested during the hype phase.
The big tech firms who are pumping money into.
AI are all profitable. Businesses, while you might
think of Facebook. As a social network, Google.
As a search engine and Amazon as an online retailer, they're all
mostly in the advertising business.
They make their money selling advertising and are then pumping
it into an AI moon shot, hoping that they'll find a way of
turning a profit out of it. But at present we don't know
where. Those profits will.
Come from. They haven't explained that yet.
Huge tech spending in the past has sometimes, but not.
Always worked out. Investors are still waiting to
see. Returns.
On the investment in virtual reality headsets, the metaphors
and blockchain I. Started out by.
Telling you about the SEC warning investorsduringthe.com
bubble to not just invest in a company because they add.com to
their name. Well, it turned out that the
SEC. Was wrong about that a 2001
paper in the Journal of Finance? Called arose dot.
Com by any other name found that while name changes generally
don't affect the value of a company, there had been dramatic
increases in both stock price and trading volume for the
companies who took on Internet related names during that.
Two year period, the professors found.
That the companies that changed their names.
Rose an average of 53. Percent over the five days after
the announcement date. Over 15 business days.
The stock prices rose by. And I'm not making this up. $4.
And $0.20. Per share they.
Found that the returns were similar.
Across all firms, regardless. Of the company's actual
involvement with the Internet. The professors checked if the
stock. Price changes could be explained
by the small company effect. By the beta of the stocks.
Or by a momentum effect, they compared the returns on these.
Stocks to the. Returns of real Internet
companies who didn't have Internet related names.
In case the returns were just. Sector bias.
The results were robust. So maybe in an AI?
Bubble fake AI. Companies will do.
Just as well as real. AI companies and maybe Mark.
Zuckerberg should quickly. Rename Mehta.
While he. Still has a chance.
The old name isn't doing him any favours right now.
By September 2. 1000 The New York Times reported that
companies were dropping the ES, the IS, and the dot coms from
their names. Times had changed and no one
wanted to be a.com in the early 2000s.
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